Disney's New Amazon Deal: Does Ad Targeting Upgrade Justify a Buy?
Disney 's DIS recent partnership with Amazon AMZN -owned Amazon Ads represents a strategic move to enhance its advertising capabilities, but investors should exercise patience before adding shares to their portfolios. While the integration of Disney's Real-Time Ad Exchange with Amazon's demand-side platform promises improved ad targeting and revenue optimization, the deal alone does not constitute a compelling reason to buy Disney stock at current levels.
The partnership, announced at the Cannes Lions Festival, grants Amazon DSP direct access to premium inventory across Disney+, ESPN, and Hulu platforms. This makes Amazon only the third demand-side platform, alongside Google and The Trade Desk, to integrate with Disney's DRAX system. The collaboration enables advertisers to combine Disney's audience data with Amazon's extensive commerce insights, creating more precise targeting capabilities that could theoretically command higher advertising rates.
Disney's Bold Move to Support Ad-Supported Streaming Tiers
The Amazon partnership addresses a critical need for Disney's advertising business as the company seeks to maximize revenues from its ad-supported streaming tiers. By leveraging Amazon's commerce data, Disney can offer advertisers more sophisticated targeting options, potentially reducing ad frequency for consumers while improving campaign effectiveness. This enhanced capability could prove valuable as Madison Avenue grapples with an oversupply of connected TV inventory, particularly as more streaming services introduce ad-supported options.
However, the integration's impact on Disney's financial performance remains uncertain. The partnership will launch with select advertisers in the third quarter of 2025, meaning meaningful revenue contributions are unlikely to materialize until fiscal 2026. Additionally, while the deal expands Disney's addressable advertising market internationally to countries, including France, Germany, Italy, and the United Kingdom, the advertising business remains a relatively small portion of Disney's overall revenues compared to its Experiences and traditional content businesses.
The announcement follows Disney's solid second-quarter fiscal 2025 performance, which demonstrated the company's continued execution across its strategic priorities. Revenues increased 7% to $23.6 billion, while adjusted earnings per share grew 20% compared to the prior year. The Entertainment segment showed particular strength with operating income rising 61 percent, driven by improved Direct-to-Consumer results and Content Sales/Licensing performance.
Disney's streaming business continues its trajectory toward profitability, with Entertainment Direct-to-Consumer operating income reaching $336 million in the quarter. The company ended the period with more than 180 million Disney+ and Hulu subscriptions, representing an increase of 2.5 million from the previous quarter. Disney+ specifically grew to 126 million subscribers, demonstrating the platform's continued appeal despite increased competition in the streaming landscape.
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $94.89 billion, indicating 3.86% year-over-year growth, with earnings expected to increase 15.9% to $5.76 per share. These projections suggest steady growth ahead.
Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Valuation Concerns and Competitive Pressures
Despite strong operational performance, Disney faces significant headwinds that warrant caution from investors. The company operates in an increasingly competitive streaming environment where content costs continue to escalate while subscription growth faces natural limits. Netflix NFLX, Amazon Prime Video, and newer entrants like Apple AAPL -owned Apple TV+ are all vying for the same subscriber base and advertising dollars, potentially pressuring Disney's ability to raise prices or maintain market share.
Shares of Disney have returned 6% in the year-to-date period against the Zacks Consumer Discretionary sector's growth of 4.8%. While Netflix has returned 38.4% year to date, shares of Amazon and Apple have lost 1.7% and 22%, respectively.
Disney's Year-to-date Performance
The traditional linear television business continues its secular decline, with Disney's Linear Networks segment showing mixed results. The company's Sports segment also experienced headwinds, with operating income declining 12% due to higher programming costs despite revenue growth. Disney's Experiences segment, historically a reliable growth driver, showed resilience with operating income increasing 9%. However, international parks faced softness, particularly in China, reflecting broader macroeconomic uncertainties that could impact the company's global operations.
From a valuation perspective, Disney shares have reflected these mixed fundamentals. The company currently trades at 19.32 times forward 12-month price-to-earnings, notably below the Zacks Media Conglomerates industry average of 20.26 times. Investors should consider whether current prices adequately reflect the ongoing transformation challenges facing traditional media companies.
DIS' P/E F12M Ratio Depicts Discounted Valuation
Investment Recommendation
The Amazon partnership represents a positive step in Disney's advertising evolution, but it does not fundamentally alter the company's near-term investment thesis. Current shareholders should maintain their positions given Disney's strong brand portfolio, improving streaming economics, and robust Experiences business. However, prospective investors may benefit from waiting for a better entry point, potentially in fiscal 2026, when the benefits of the Amazon partnership and other strategic initiatives become more apparent in financial results.
Disney remains a high-quality company with valuable intellectual property and diverse revenue streams, but the stock requires patience as management navigates the ongoing media industry transformation. Disney currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in the coming year. While not all picks can be winners, previous recommendations have soared +112%, +171%, +209% and +232%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Apple Inc. (AAPL): Free Stock Analysis Report
Netflix, Inc. (NFLX): Free Stock Analysis Report
The Walt Disney Company (DIS): Free Stock Analysis Report
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Globe and Mail
17 minutes ago
- Globe and Mail
What Are the Top 5 Artificial Intelligence (AI) Stocks to Buy Right Now?
Artificial intelligence (AI) has the potential to be the most important technological advancement in history, and it still appears to be in its early innings. As such, the space is still one of the most promising places to invest. When delving down to specific stocks to focus attention on, five of the best AI-related offerings to buy right now are Nvidia (NASDAQ: NVDA), Broadcom (NASDAQ: AVGO), Taiwan Semiconductor Manufacturing (NYSE: TSM), Palantir Technologies (NASDAQ: PLTR), and GitLab (NASDAQ: GTLB). Each company has found a unique niche in the AI sector to exploit, and each has big opportunities ahead. Let's look at why these are among the best AI stocks to invest in right now for the long term. 1. Nvidia Nvidia's graphics processing units (GPUs) have become the backbone of AI infrastructure. These powerful chips are used to help power AI workloads, and demand has been soaring. The company's wide moat, however, comes from its CUDA software platform. Nvidia launched CUDA two decades ago to allow developers to program its GPUs more easily. It pushed CUDA into universities and research institutions early on, which helped CUDA become the de facto software program for AI developers. In Q1, the company had an over 90% market share in the GPU space. As a result, where AI infrastructure spending goes, Nvidia is sure to follow. While a slowdown in data center spending would be a risk, right now, demand for AI chips is only getting bigger. This is being driven by cloud computing companies pouring money into AI infrastructure to keep up with demand; large tech companies and AI start-ups spending big to create new foundational AI models; and even countries making large investments to not fall behind in the AI race. As AI infrastructure spending continues to ramp up, Nvidia remains a clear winner. 2. Broadcom Another company taking advantage of the AI infrastructure build-out is Broadcom. Rather than designing GPUs like Nvidia, it's been focused on networking components and helping customers design custom AI chips. It also added a software component when it acquired VMWare. Thus far, its strategy is paying off. Its Ethernet switches and other networking components help efficiently move data within huge AI clusters, making them an essential part of data center infrastructure. Last quarter, its AI networking revenue soared 70% and accounted for 40% of Broadcom's total AI revenue. However, Broadcom's biggest long-term opportunity comes from helping customers design custom AI chips, which can offer better performance and lower power consumption than off-the-shelf GPUs. Demand is starting to pick up. Broadcom says its top three custom chip customers are on track to deploy 1 million AI chip clusters each by 2027, representing a total opportunity of between $60 billion to $90 billion. On the software side, Broadcom also benefits from transitioning VMWare customers from perpetual licenses to a subscription models and upgrading them to its VMware Cloud Foundation (VCF) platform. VCF helps customers build hybrid and multi-cloud environments so they can manage workloads across public clouds and their own on-premises data centers. At the end of last quarter, 87% of its top 10,000 customers had adopted VCF. While an AI infrastructure spending slowdown is a risk, given its networking leadership, custom AI chip opportunity, and growing software revenue, Broadcom is well-positioned moving forward. 3. Taiwan Semiconductor Manufacturing While semiconductor companies garner most of the attention from investors, Taiwan Semiconductor Manufacturing is the company that actually manufactures most of these AI chips. It's the clear leader in advanced semiconductor manufacturing and a key partner to top customers like Nvidia, Apple, and Broadcom. Meanwhile, AI is driving its business. High-performance computing now makes up 59% of its revenue, up from 46% a year ago. Most of that comes from advanced nodes. Nodes refer to the manufacturing process used to make chips. The smaller the number (measured in nanometers), the more transistors you can pack onto a chip. This improves a chip's performance and power efficiency, and TSMC is the best in the world at making these at scale. And with rivals struggling to make advanced chips, this has given TSMC strong pricing power, as well. The biggest risk to TSMC is a slowdown in AI infrastructure spending, which would hit both revenue and fab utilization. However, the company is working closely with its largest customers to build out capacity in lockstep with their demand. With advanced-node capacity tight, TSMC is well-positioned to continue to be an AI infrastructure build-out winner. 4. Palantir Technologies Palantir Technologies has emerged as a key player in the AI space. Instead of putting resources into developing AI models, the company focuses on the applications and workflow layers of AI to essentially develop an AI operating system. It does this by gathering data from a wide array of sources and organizing it into an ontology that links the data to its real-world counterparts. As a result, the company's AI Platform (AIP) can help organizations solve complex problems. This includes everything from monitoring sepsis in hospitals to streamlining underwriting processes in insurance. The sheer number of use cases across various industries that AIP can handle is just an enormous opportunity for Palantir moving forward. The company saw its revenue growth consistently accelerate over the past two years, including a 39% increase last quarter. The stock is not without risks, as it carries a high valuation and is exposed to government budget cuts, since the federal government is still its largest client. However, Palantir is unique in the AI space and has one of the biggest opportunities in front of it. 5. GitLab GitLab is a leader in the DevSecOps space, offering a platform that helps developers build software securely. It's been an AI winner, as customers expand seats and upgrade to its higher-tier platforms as AI increases the customers' software development. GitLab is also helping customers become more productive with products like GitLab Duo, which uses AI to provide code suggestions and automation to streamline development. The company consistently delivered strong revenue growth of between 25% to 40% over the past two years and boasts impressive gross margins and solid free cash flow. It's also done a great job growing within its existing customer base, as evidenced by its 122% dollar-based net retention over the past 12 months. Most of this is coming from seat expansions, followed by strong upgrades to higher-tiered offerings. While there has been concern that AI will replace coders, right now the opposite has been true, as GitLab's technology is being used to make software developers more productive, not replace them. This is driving strong growth and makes the company look like a solid long-term winner. Should you invest $1,000 in Nvidia right now? Before you buy stock in Nvidia, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $659,171!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $891,722!* Now, it's worth noting Stock Advisor 's total average return is995% — a market-crushing outperformance compared to172%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of June 9, 2025
Globe and Mail
27 minutes ago
- Globe and Mail
2 Top Stocks to Buy Now at Big Discounts and Hold for Years
Sometimes Wall Street can be very slow to understand the real value of a business. The competitive advantage and growth strategy of a company can be misunderstood, leading to depressed valuations and underperforming share prices. Investors who can see through the stock volatility and focus on the key signals that set a company up for long-term success can be rewarded with outsize gains over time. Here are two stocks of market-leading brands that are trading well off their previous highs and could be significantly undervalued. 1. RH RH (NYSE: RH), the company formerly known as Restoration Hardware, emerged as a prominent luxury furniture brand over the past decade. In the past year, however, the business struggled with several macroeconomic headwinds, such as a weak housing market and uncertainties over tariffs. Questions about near-term demand have sent the stock down 52% this year, but this is a great buying opportunity for a long-term investor. RH's trailing-12-month revenue of $3.3 billion is below its previous peak of $3.9 billion a few years ago, but it just reported a strong first quarter. Revenue grew 12% year over year in the quarter, outperforming the rest of the industry. RH is expanding its addressable market to hospitality offerings in its design galleries, such as restaurants and wine bars, which has elevated the shopping experience to something that cannot be replicated by e-commerce competitors. Moreover, the company entered the $200 billion North American hotel industry with RH Guesthouses, and it offers much more, including private jets and luxury yachts for charter in the Caribbean and Mediterranean. All this creates an ecosystem of services meant to showcase the RH lifestyle and raise the brand to something more than just furniture products. It's for these reasons that RH has a history of reporting much higher margins than the average furniture store. Its adjusted operating margin was 7% in the first quarter, below its previous 10-year average of 12%. It should return to those higher margins in a strong housing market, and this is not reflected in the stock's valuation. Over the last 10 years, the stock traded at a price-to-sales multiple ranging from 0.48 to 6.59. The average was just over 2 times sales, with the stock currently trading at a multiple of 1.16. Investors who buy shares at these lower discounted prices and hold until the housing market is fully recovered should be well rewarded. 2. Roku Roku (NASDAQ: ROKU) is another beaten-down stock whose long-term prospects are not fully reflected by its current share price. The stock is trading about 32% below where it was five years ago, but the platform continues to show double-digit growth in revenue that sets up a potential bull run. Roku is a leading connected-TV streaming platform that is benefiting from a growing digital advertising market, which is how the company generates most of its revenue. It also gets a small percentage of revenue from selling its streaming devices, but that is a low-margin business. Advertising can be cyclical with the broader economy, and that's what caused the stock to collapse a few years ago. But Wall Street is missing the real value of the company's platform. It is fundamentally a TV operating system that has achieved tremendous viewership in the U.S. through its affordable Roku TVs and streaming devices. The company reaches half of U.S. broadband households. This large viewership led to 35.8 billion total streaming hours on its platform in the first quarter, representing a year-over-year increase of 16%. This opens up a lot of opportunities for growth over the long term, as evidenced by a recent deal with Amazon. Roku just announced an integration with Amazon Ads, which could have a significant impact on Roku's advertising revenue. This partnership will allow advertisers to access 80% of U.S. connected TV households through Amazon's demand-side platform, sending more business to Roku. The streamer's revenue grew 16% year over year in the first quarter, indicating more advertising by big brands that want exposure to its large user base. This reach provides tremendous negotiating power with content providers, retail brands, and other media companies that would like access to Roku's audience. The stock is priced at a 2.74 price-to-sales multiple, which is at the low end of its past trading range. As Roku continues attract more advertising investment, investors who patiently hold the stock will be rewarded. Should you invest $1,000 in RH right now? Before you buy stock in RH, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and RH wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $659,171!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $891,722!* Now, it's worth noting Stock Advisor 's total average return is995% — a market-crushing outperformance compared to172%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of June 9, 2025 John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Roku. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.
Globe and Mail
32 minutes ago
- Globe and Mail
Billionaire Seth Klarman Holds Just 1 "Magnificent Seven" Stock in His Hedge Fund's Portfolio -- and He Just Bought More
Seth Klarman is a well-respected value investor with a global following. And there's good reason for that. His Baupost Group hedge fund returned an average of 20% per year over the first 30 years of its existence. That performance comes despite value stocks falling well out of favor over the last decade. But Klarman and his team emphasize that they "remain flexible in their application" of value investing. That means investing in stocks that are mispriced relative to their value, even if they won't show up on any stock screeners for deep value based on traditional metrics. As a result, this method can end up with some stocks that many investors would consider growth stocks, such as those found in the Magnificent Seven. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More » But Klarman only sees one member of the vaunted group of trillion-dollar stocks as worth his and his investors' money, and he just added more of it to Baupost's portfolio. The only Magnificent Seven stock Klarman likes The Magnificent Seven is a group of stocks full of interesting opportunities for the right investor. And anyone who invested in any or all of them is probably happy with their returns over the last couple of years. But a few may not present the value necessary for an investment from someone like Klarman. As a group, they're relatively expensive based on traditional valuation standards. Four of the seven sport forward P/E ratios above 30, including Tesla (NASDAQ: TSLA) with its 168 times multiple. While Tesla could prove worth the price with its plans for a robotaxi service and humanoid robots, there's a lot of risk in buying the stock at its current price, especially as its core car business is facing stiff competition abroad. The other high-priced members are growing quickly and on relatively solid footing, but it's hard to argue they're a bargain at their current prices. But one member of the group trades for a valuation below the S&P 500 's average, and that's kind of surprising for a stock with such strong growth potential. The stock has consistently traded at or near the lowest valuation of the Magnificent Seven, giving investors plenty of opportunities. That's why Klarman and his team have built up a position in Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), including adding 652,000 more shares in the first quarter, increasing its stake in the company by 46%. The best value among the Magnificent Seven There are good reasons for Alphabet to trade at a lower valuation than the rest of the group. It carries some significant risks. The first big risk facing Alphabet is regulatory risk. The company faces several lawsuits in the U.S. and elsewhere that could result in interventions to reduce any monopolistic powers, particularly in web search and digital advertising. That could include things like selling its Chrome browser or its ad marketplace and ending agreements like its $20 billion per year traffic acquisition partnership with Apple. Despite those risks, the impact on Alphabet's operations could be muted given the strength of its brand and product. That's where the second risk comes in. Many see artificial intelligence (AI) chatbots like OpenAI's ChatGPT eating into Google's dominance of web search. In a hearing last month, Apple's Senior VP for Services, Eddy Cue, suggested iPhone users are searching less in 2025 and spending more time in AI apps. However, the data from Alphabet doesn't support the narrative that it's losing significant share to AI. In fact, AI may be a boon to its search business thanks to three new features the company's introduced to leverage the power of large language models. Its AI Overviews (and now AI Mode) have led to increased user engagement and satisfaction, as users expand the search queries they send to Google. Importantly, management says it's able to monetize searches with AI Overviews at the same rate as searches without it. Two other AI-powered features driving search are circle-to-search and Google Lens, which have increased valuable product searches on Google. One piece of Alphabet's business that has seen very strong results without much regulatory threat is its Google Cloud platform. The cloud computing segment is seeing strong demand fueled by AI, which pushed its revenue 28% higher year over year in the first quarter. Moreover, its operating margin expanded to 17.8% from just 9.4% last year, and there's still significant upside from there. Alphabet is also home to "Other Bets," which includes the leading self-driving car company, Waymo. Waymo's made significant progress in its robotaxi business and remains years ahead of the next closest competitor. It now completes 250,000 paid trips per week, as of its most recent update at the start of May. As the market expands, Waymo could prove a significant growth driver for the company. All this is to say, the company as a whole should conservatively be able to produce double-digit revenue growth for the foreseeable future despite the regulatory and competitive challenges it faces. And as Google Cloud and Waymo scale, they should enable even faster earnings growth. At a forward P/E close to 18, Alphabet's stock looks like a bargain among the Magnificent Seven. It's no wonder Klarman and his team have continued to add shares around this price. Should you invest $1,000 in Alphabet right now? Before you buy stock in Alphabet, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $659,171!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $891,722!* Now, it's worth noting Stock Advisor 's total average return is995% — a market-crushing outperformance compared to172%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of June 9, 2025 Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy has positions in Alphabet and Apple. The Motley Fool has positions in and recommends Alphabet, Apple, and Tesla. The Motley Fool has a disclosure policy.
